The cost and marginal revenue curves for a firm in a perfectly competitive market are shown in this graph.

What price will lead to an increase in the market supply of this good in the long run?

Choose 1 answer:
(A) $\$ 214$
(B) $\$ 20$
(C) $\$ 130$
(D) $\$ 35$
(द) $\$ 80$

Question

The cost and marginal revenue curves for a firm in a perfectly competitive market are shown in this graph.

What price will lead to an increase in the market supply of this good in the long run?

Choose 1 answer:
(A) $\$ 214$
(B) $\$ 20$
(C) $\$ 130$
(D) $\$ 35$
(द) $\$ 80$

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Market Supply: Market supply refers to the total quantity of a good that all firms in the market are willing and able to sell at different prices. ‖‖ b ⋮ Long-Run Supply Increase: In the long run, firms will enter the market if they can earn a profit. This occurs when the price is above the average total cost (ATC). ‖‖ c ⋮ Graph Analysis: From the graph, the ATC curve intersects the MC curve at $130. This is the break-even point where firms earn zero economic profit. ‖‖ d ⋮ Price Above ATC: For firms to earn a profit and increase market supply in the long run, the price must be above $130. ‖ ∻Answer∻ ⚹ $214 ⚹ ∻Key Concept∻ ⚹ Long-Run Market Supply Increase ⚹ ∻Explanation∻ ⚹ In the long run, firms will enter the market and increase supply if the price is above the average total cost (ATC). From the graph, the ATC curve intersects the MC curve at $130. Therefore, a price of $214 will lead to an increase in market supply. ⚹◊What is the relationship between marginal cost, average total cost, and average variable cost in the long run market supply for a perfectly competitive firm?⍭ Generate me a similar question◊

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